Snapshot for week beginning 28 February. Scandinavia was the hottest spot during the dealmaking week.
Across Europe, mergers to strengthen domestic market positions would make sense for many banks given that European banking sectors are still fragmented.
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With a large number of small banks that lack economies of scale to compete effectively while maintaining profitability and making the necessary investments in technology.
Nordic banks are building up their presence
Large Nordic banks have recorded significantly lower loan loss provisions than European peers during the pandemic, but there are risk factors that could end this track record this year, according to analysts.
The median cost of risk for the six largest Nordic banks — Nordea Bank, Danske Bank, DNB ASA, Svenska Handelsbanken, Skandinaviska Enskilda Banken and Swedbank — was 37 basis points in the first nine months of 2020, according to S&P Global Market Intelligence data.
This is compared with a 75-basis-point median for large European banks outside of the Nordic region.
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By GlobalDataBanks are also scaling back from leveraged loan exposure as credit risk tied to them remains elevated.
Many banks have increased their loan loss provisions but the actual impact of — Covid-19 on corporate and consumer lending is still largely unknown.
This could encourage many bank boards to include M&A in future strategic actions as they struggle to grow earnings.
Our featured deal this week is about a Swedish bank acquiring a Norwegian holding company.
Deal of the week: Nordax Bank to acquire Norwegian Finans Holding
Nordax Bank, a Sweden-based provider of financial products and services, has announced to acquire the entire outstanding share capital in Norwegian Finans Holding, a Norway-based supported by Nordic Capital Fund VIII1, Nordic Capital Fund IX2 and Sampo Oyj.
Nordax intends to launch a NOK17.8 billion (USD209.84 Million) all-cash offer for all the outstanding shares in NFH for a cash consideration of NOK95 per NFH share.
The Offer will be financed through a combination of equity, debt and cash on balance sheet. Nordic Capital Fund IX and co-investors will contribute significant new equity to Nordax. In addition, third parties have committed to provide hybrid financing.
Nordic Capital Fund IX3 and Sampo Oyj, owning 16.40% and 6.33% respectively of the shares in NFH, have entered into conditional agreements to contribute their existing shares in NFH to Nordax in exchange for shares in Nordax.
The agreements are conditional upon a successful completion of the Offer.
Completion of the Offer will be subject to a minimum acceptance level of at least 50.1% of NFH’s outstanding shares (including the 22.72% Contributed Shares). While Nordax’s intention is to acquire 100% of NFH, Nordax also sees strong merits in becoming the majority shareholder in NFH.
The transaction is expected to complete during the first half of 2021.
Notable drivers of banking consolidation globally
At a global level, banking consolidation theme would remain.
Analysts also expect other integrals drivers such as digitalisation, low profitability concerns, push towards sustainable finance, challenged earnings, asset quality issues and regulatory intervention to reshape the banking deal landscape in 2021.
A critical driver for deal activity in 2021 will be heightened digital engagement with customers decreasing the need for physical branches.
Globally, banks are likely to place more capital investment in buying new technology and digitisation.
